Shopify just experienced its best-ever quarter as more businesses turn to online platforms to sell their products, but is it close to competing with Amazon?
Shopify (NYSE: SHOP) has had a blockbuster year, with the stock more than doubling since the start of 2020. Businesses have been flocking to Shopify to help them set up an e-commerce website so they can generate sales in the current climate. In turn, the company now has the second-largest e-commerce market share, behind e-commerce giant Amazon (NASDAQ: AMZN). Let’s take a look at why this company is on the path to continued success.
Bull case for Shopify
The e-commerce platform’s shares have rallied more than 100% in the past 6 months as consumers increase the need to shop electronically. In turn, new stores created on the platform grew by 71% in the second-quarter compared to the same time last year. This demand for businesses offering online shopping generated a 97% jump in revenue to $714.3 million year-over-year.
Shopify also recently teamed up with Pinterest in an app that allows the more than one-million Shopify merchants to turn their products into shoppable pins. The Pinterest app offers consumers a number of features like automatic daily product updates and a shop tab on the company’s profile.
While some physical stores have reopened, people are likely to continue their e-commerce habits as it is a much safer option. The need for physical distancing and high demand for online stores could see Shopify’s revenue grow from predicted $2.6 billion in 2020 to $9 billion in 5 years time. This would mean a rise of about 29% each year.
Is Shopify the next Amazon?
Amazon is the top e-commerce platform with around 37% of the U.S. market share. Shopify has the second largest share of the market, at 6%, meaning it has a long way to go to catch up and is only slightly ahead of eBay. Despite the huge gap to get to top place, it isn’t at all unobtainable.
The large increase in businesses turning to Shopify is positive and the company offers an attractive base as it doesn’t charge brands commission to rent space on the platform, whereas Amazon charges around $1 per item plus fees up to 45%. This also means more small to medium-sized businesses are likely to use Spotify as they are already feeling the impact of the coronavirus and will be conservative with money.
However, it is likely going forward that Shopify will avoid head-on competition with Amazon, and instead it could invest more in its tools and services to attract more merchants. If Shopify continues to generate high growth revenue it will close the gap further and have a larger market share, however it could be many years before Amazon really has to worry about close competition.
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Is Shopify a good investment?
The growing revenue for the e-commerce business is a positive sign that the platform is a good long-term investment. While it has a lot of work to do before it can get close to having the market share that Amazon has, it is on the right track. I would be buying shares in this company sooner rather than later, with the price expected to rise if the company reaches its expected revenue growth.
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